Market Structure, Pigouvian Taxation, and Welfare

Atlantic Economic Journal, vol. 25, no. 2, pp. 128-138, 1997

Posted: 29 Mar 2016 Last revised: 5 Apr 2016

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

Edward Hsieh

Independent

Date Written: 1997

Abstract

Using a short-run partial equilibrium model of social welfare, this paper examines the social welfare implications of changing Pigouvian taxes under three markets: perfect competition, monopoly, and Cournot oligopoly. The result for perfect competition supports the earlier finding that Pigouvian taxation increases social welfare [Buchanan, 1969]. However, in contrast to the previous result that Pigouvian taxes lower welfare under monopoly, the authors show that if the noncompetitive distortion is small, these taxes might still be useful in correcting monopoly-generated externalities and in improving social welfare. Cournot firms react to the tax depending upon their individual perceptions of the gain in post-tax marginal revenue. Policy implications of the study's results are discussed.

Suggested Citation

Goel, Rajeev K. and Hsieh, Edward, Market Structure, Pigouvian Taxation, and Welfare (1997). Atlantic Economic Journal, vol. 25, no. 2, pp. 128-138, 1997. Available at SSRN: https://ssrn.com/abstract=2755718

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

Edward Hsieh

Independent ( email )

No Address Available
United States

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